The disclosure of real estate conditions is a critical element in any property transaction and plays an increasingly important role for property owners and their attorneys, agents, brokers, appraisers, inspectors and other consultants. Federal and state laws, lender policies and regulations, as well as demands by prospective buyers create a considerable demand for the full disclosure of any potential detrimental conditions. Notwithstanding government requirements, there are several reasons that a full real estate disclosure is beneficial. Buyers obtain better knowledge of what they are purchasing, and a full disclosure helps shield sellers, brokers and appraisers from future liability. Also, lenders obtain a better understanding of their collateral asserts. Real estate disclosure does not put any dollar figure on any conditions. Rather, a proper disclosure report simply informs the user of the report that certain conditions are known or believed to exist.
Historically, the disclosure of conditions that might impact property values or purchase decisions has been a fragmented topic. There does not exist a single, universal disclosure report. Some states require disclosure and others do not. Appraisers and property inspectors disclose some conditions but not all of them. Most real estate professionals issue reports with long boilerplate disclaimers specifically citing that they did not investigate a variety of issues, even though these issues could have a material impact on the property""s value or the decision to buy or lend.
The real estate disclosure reporting method according to the present invention provides a complete disclosure of all property-relevant issues based upon three important sources: the personal knowledge of the real estate professional; public records and agency databases; and an interview with a party to the transaction, typically the property owner. In addition, an itemized disclosure is made of specific aspects of other reports, such as soil, termite and title reports so that the user of the disclosure data has a clear picture of the entire disclosure process.
One aspect of the real estate disclosure reporting method according to the present invention has the steps of compiling items of disclosure that are indicative of conditions that might impact property values and purchasing decisions, defining condition categories that are generally descriptive of real estate conditions and researching a particular property to determine known items of disclosure. The reporting method also has the step of generating a disclosure report that displays the known items of disclosure according to the condition categories. The reporting method may also have the steps of classifying the items of disclosure so that particular ones are associated with particular condition categories to create categorized items of disclosure and creating a disclosure form listing the categorized items according to the condition categories, where the disclosure form provides for an area near the categorized items of disclosure to indicate if particular items of disclosure are known.
In one embodiment of the real estate disclosure reporting method described above, the compiling step has the substeps of identifying potential items of disclosure based upon disclosure requirements, testing a characteristic of the potential items so as to generate a master set of items of disclosure, and determining a priority subset of the master set by comparing the master set with the disclosure requirements. The characteristic may be comprehensiveness with respect to the disclosure requirements, narrowness in scope or mutual exclusiveness.
In another embodiment, the defining step has the substeps of identifying a set of commonalities of the items of disclosure, defining initial categories based upon the set of commonalities, and testing a characteristic of the initial categories to derive the condition categories. The characteristic may be comprehensiveness with respect to the items of disclosure, breadth of scope, or logical association of the items of disclosure.
In yet another embodiment, the researching step utilizes information from a primary source directly related to the property, a publicly available record or a third-party compiled document. The primary source is a researcher""s personal knowledge of the property, observations of the property or interview of an owner of the property. The publicly available record is an online database, a government office record, or a law enforcement record. The third-party compiled document is a report, study, plan, survey, loan document, escrow document, insurance policy, lease, contract or aerial photo.
In a further embodiment of the real estate disclosure reporting method described above, the reporting step has the substeps of indicating on a primary form a priority set of the known items of disclosure so as to create a real estate disclosure report, and commenting on a supplemental form regarding a non-priority set of the known items of disclosure so as to create a supplemental disclosure report. A further substep may be providing on the primary form a general indication of the non-priority set of known items of disclosure.
In yet a further embodiment, the classifying step has the substep of performing a predetermined sequence of condition category tests on the items of disclosure. The predetermined sequence may comprise testing an item for an impact on all property, a one time issue for a buyer, an environment-related condition, a conservation-related condition, a site-related condition, a natural condition, a building-related condition, an external condition, or a legal obligation.
In another embodiment, the creating step has the substeps of obtaining a blank media, dividing the media into partitions, and labeling the partitions according to the condition categories. A further step may be creating a supplemental disclosure form having a comment section, a legal notices section and a signature section.
Another aspect of the disclosure reporting method according to the present invention has the steps of identifying items of disclosure, performing primary research to determine a first set of known items, accessing publicly available information to determine a second set of known items, and reporting the first set and the second sets according to categories that are generally descriptive of a class of real estate conditions. In one embodiment, the performing step has the substeps of walking-through a property and interviewing an owner of the property. In another embodiment are the further steps of reviewing third-party research to determine a third set of known items, and reporting the third set according to specific categories.
Yet another aspect of the real estate disclosure reporting method according to the present invention has the steps of creating a disclosure form having partitions and labeling the partitions according to corresponding categories that are generally descriptive of a class of real estate conditions. Further steps include identifying items of disclosure and listing the items of disclosure within the partitions according to the categories. In one embodiment, additional steps are determining a known item of disclosure for a specific property and providing an indication near a particular item of disclosure corresponding to the known item. In another embodiment are the further steps of creating a supplemental disclosure form having partitions, lining at least one partition for comments, printing legal notices in at least one other of the partitions, and providing a signature block in at least another one of the partitions.